Pipruit: And how did it happen that the dollar became the dominant currency in the world?​

​

Commander in Pips: In general there were a couple of major turning points – the Bretton Woods System and the Marshall Plan after the WWII.

Bretton Woods System

Closer to the end of WWII has appeared a necessity to develop new rules of international commercial and financial relations among world’s major industrial states. For that purpose 730 delegates from 44 Allied nations gathered in Bretton Wood (USA) for the United Nations Monetary and Financial Conference in 1944. The major result of this conference was a decision that all countries should maintain a fixed rate for their own domestic currency in terms of gold within a 1% deviation (plus or minus). Also this conference established the International Monetary Fund (IMF) and the International Bank of Reconstruction and Development (IBRD). If, for example, the rate of some national currency skewed more than 1% to one side or the other from the fixed rate, that country should use their own gold reserves to reestablish equilibrium. If some country did not have a sufficient amount of gold reserves – it could call for IMF credits. That was the major purpose of the IMF – to provide credits to reestablish the normal currency rate in terms of gold, in other words, liquidate the current account deficit.

But the major problem began appeared after WWII, when the totally destroyed European economy couldn’t maintain any fixed rates for European currencies to gold. Because the major portion of gold reserves has been spent for military purposes, national currencies of Europe had totally collapsed compared to the USD due to absolute destruction of some nations’ economies. European capitalism suffered from a huge dollar shortage. The IMF couldn’t help in these circumstances, because according to the Bretton Woods Articles of Agreement, the IMF could make loans only for current account deficits and not for capital and reconstruction purposes. But Europe desperately needed long-term investments for rebuilding its totally destroyed economy after WWII. IBRD also couldn’t help, because had only a $570 million contribution from the USA. According to IBRD policy, it could provide loans only when its repayment was assured. This was impossible with most European countries after the war. In turn, the United States was running a huge balance of trade surpluses, and the USA’s reserves were immense and growing. It was necessary to reverse this flow. Dollars had to leave the United States and become available for international use. In other words, the United States would have to reverse the natural economic processes and run a balance of outbound payments. All these circumstances led to the Marshall Plan…

Economic Calendar, Money Transfers, Traders Tools

Trading FX or CFDs on leverage is high risk and your losses could exceed deposits.

ForexPeaceArmy.com has advertising and affiliate relationships with some of the companies mentioned on this site and may be compensated if readers follow links and sign up. We are committed to the fair handling of reviews and posts regardless of such relations.